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By JoAnn Lombardi, President VR Business Brokers/Mergers & Acquisitions
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From a lack of preparation to proceeding without the help of a skilled intermediary, these are some of the most common mistakes made by sellers.
Selling a business for a satisfactory return and within your preferred timescale can be a
challenging prospect. Attracting buyers requires a focused approach, careful groundwork, and realistic expectations.
Here are some common pitfalls you should avoid boosting your chances of a successful
outcome.
Lack of Preparation
Owners frequently underestimate the time required to prepare for a business sale. Most
business brokers advise allowing significant time to thoroughly prepare for going to market. This allows you to formulate a viable exit strategy, which should include an effort to make the business more appealing. For example, cutting wasteful costs, putting your financial history in order, and tidying or even renovating your premises will positively influence the selling price.
Overconfidence
As elsewhere in your business activities, confidence can be a useful tool – provided it is
grounded in reality. Purchasers will generally only pay what your business is worth – and their assessment of that figure will be based on independent valuations based on profit, asset values and other measurable factors, not on your own personal estimate.
Obtaining a professional business valuation at an early stage will keep your expectations
realistic and give you an idea of the work required to realize enough cash to fund your next venture or a comfortable retirement. It’s also useful to research the online marketplace to check the asking price of similar businesses and to ask your VR Advisor about the current sales climate, prevailing trends and the factors driving prices.
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Shareholder agreements enable owners to plan their company’s future – whatever unexpected events might befall it. These agreements assign ownership, set a value for company shares, dictate buyout terms, and outline how the company will be managed. This detailed plan helps to eliminate surprises and minimize disagreements down the line.
Keeping it Inside
Often, businesses draft shareholder agreements to prevent owners from selling their stakes to outside parties or to restrict share ownership transfer upon an early abandonment of an owner’s obligations. An agreement typically requires that an owner who wants to sell to someone outside the company give the remaining shareholders the right of first refusal, or an option to buy the shares at a certain price.
This first-refusal provision may stipulate that a seller offer shares to the remaining owners at the same price and terms – including financing – offered by the outside party. The other owners typically are given 30 to 60 days to decide and arrange financing. If they can’t match the outside party’s offer, they may have to accept the new partner.
Shareholder agreements also set up a succession plan to go into effect when an owner retires, dies, withdraws, or has his or her ownership terminated for cause. When owners die, their shares pass through their estates to their beneficiaries. If there are no buy-sell provisions, beneficiaries aren’t required to sell their shares to the company. If they elect to sell them back, they can dispute the shares’ value. The beneficiaries may choose to sell to an outsider or to keep the shares and take an active role in the business.
Buy-sell provisions in the shareholder agreement protect remaining shareholders by requiring them or the company to buy back shares from the deceased owner’s beneficiaries at a predetermined price per share. Carefully worded buy-sell language also eliminates tax consequences when a company elects to redeem shares of a deceased owner.
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How to Value a Company for Sale: 3 Methods + Common Mistakes to Avoid
There is no one-size-fits-all approach to business valuation. Each method examines your company’s value from a different perspective. Generally, M&A advisors and business valuation experts use all three methods to triangulate an accurate valuation range, ensuring you don’t undersell or oversell your business.
Here are the three most commonly used methods:
1. Discounted Cash Flow Analysis
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Summary: DCF determines intrinsic value by comparing present value to investment cost. This method estimates value based on future projections.
Discounted Cash Flow (DCF) is a method used to estimate the value of a business based on its expected future cash flows. It involves forecasting the profits your business will generate and then “discounting” those cash flows back to their present value using a discount rate. The discount rate reflects the risk and predictability of your business’ future profits while adjusting for inflation, indicating how much future profits are worth today. The sum of these discounted cash flows provides one approach to valuing the business.
To conduct a DCF analysis, you must select a long-term growth rate. This growth rate can sometimes be challenged by potential buyers because it relies on the assumptions you make.
To effectively back up your assumptions — and defend your growth rate and overall valuation — it’s best to base your growth rate on:
- Historical performance: What has growth looked like in the past 3–5 years for your business?
- Industry and market conditions: Examine the growth prospects of the industry and overall market. If the industry is expanding and there are opportunities to capture more market share, this may support a higher growth rate.
- Company-specific factors: Consider your company’s competitive position, market share, product pipeline, and expansion plans. A strong brand, innovative products, or geographic expansion can justify higher growth rates.
- Macroeconomic factors: A robust economy may support your growth assumptions.
A good advisor can establish the appropriate assumptive growth rate and defend it more effectively based on their experience in your industry. Their experience allows them to understand the nuances surrounding historical performance, market conditions, company-specific factors, and macroeconomic factors.
But a DCF analysis is just one method an advisor will use to properly value your business. DCF analysis doesn’t consider current buyer demand or market sentiment. To incorporate these conditions, you should also consider company comparable (below).
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A Commercial Electrical Contracting Business in Oak Brook, IL
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This business is a full-service electrical contracting company specializing in retail, residential, commercial, healthcare, and industrial electrical services, operating in the greater Chicago, IL metropolitan area. The company has a strong base of repeat clients and has established a loyal workforce. The owner is retiring and currently operates the business from a 2,000 sq. ft. flex industrial space that he owns. This space is available for rent or could potentially be for sale.
The business employs 12 full-time employees and 1 part-time employee, including 6 foremen, 4 journeymen, a warehouse driver, a project manager, and an office manager. It is a union shop, and an electrical contractor license is required for operation. The owner is willing to assist with the transition of ownership.
For more information contact: Dan Eitel
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VR Office in Artesia, CA Sold a Dry Cleaner Business
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Introducing a thriving dry-cleaning business, renowned for its prompt same-day service upon request. This company features a GreenEarth-branded machine, offering a top-quality, environmentally friendly cleaning experience. Operated by the same dedicated owners for 29 years, this well-established venture is now on the market as the proprietors prepare for retirement.
Situated in a vibrant neighborhood shopping center, the business enjoys excellent visibility along with ample customer parking. It occupies a prime end cap unit in the center, enhancing accessibility. The operation runs six days a week and is supported by a team of three committed full-time employees, making it a seamless, turnkey opportunity for potential investors.
This sale represented a unique chance to acquire a reputable and stable dry-cleaning business, with an added focus on retail sales.
Congratulations to Jonathan Hwang for your successful closing.
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Influence And Persuasion In M&A Business
by Gundo Kahle, CEO CBA Cross Borders Associates
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Influence and persuasion are not the same thing but play a pivotal role in the world of mergers and acquisitions, where decisions are driven by complex negotiations, strategic alignments, and the alignment of diverse interests. The ability to influence others and persuasively present ideas often determines the success or failure of a transaction, as stakeholders seek to align their goals while navigating the intricacies of valuation, integration, and cultural compatibility.
In the M&A process, influence begins with trust-building. Parties involved, including buyers, sellers, advisors, and regulators, must trust each other’s intentions, data, and expertise. Effective communication is crucial, as it establishes credibility and creates a foundation for persuasive arguments. Leaders and dealmakers often leverage their reputation, expertise, and relationships to influence counterparties, gaining buy-in for proposals and terms.
Persuasion in M&A is not only about presenting facts and figures but also about understanding and addressing the emotional and psychological dimensions of the negotiation. For instance, sellers often have sentimental ties to their business and may need to be persuaded that the buyer will honor their legacy or support the workforce. Similarly, employees in the target company may require reassurance about job security and the benefits of the acquisition to minimize resistance during the integration phase.
Timing and framing of messages also play a significant role in persuasion. A carefully crafted narrative that highlights shared goals, mutual benefits, and long-term strategic value can help overcome objections and align interests. Dealmakers use storytelling to humanize transactions, shifting focus from purely financial metrics to the broader vision, such as market expansion, innovation, or societal impact.
Additionally, influence in M&A often involves managing external perceptions, including those of investors, media, and regulators. The way a deal is presented to these stakeholders can determine its reception and legitimacy. Leaders must anticipate concerns and proactively address them through transparent communication, showcasing the rationale and benefits of the transaction.
Finally, the art of influence and persuasion extends into the post-merger integration phase. Convincing teams from different organizational cultures to embrace change and collaborate effectively requires continuous effort and skillful leadership. Leaders must act as change agents, ensuring alignment between strategy and execution while maintaining morale and productivity.
In the high-stakes environment of M&A, where competing interests and significant uncertainties often converge, the ability to influence and persuade is indispensable. Success hinges not only on technical expertise but also on the capacity to connect with people, understand their motivations, and lead them toward a shared vision.
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VR is the Only Remaining Founding Firm of The International Business Brokers Association (“IBBA”).
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Have You Ever Considered Selling Businesses?
Small businesses make up over 56% of the annual U.S. GDP and every year a large amount of them change hands. VR is the industry leader in facilitating such transactions. Click here for more information on how to join VR.
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